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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 2Executive SummaryCompanies around the world adopt data warehousing (DW) appliances in support of business processes to speedinformation worker queries, reduce the cost of IT analytics infrastructures, and shorten time-to-value in businessintelligence (BI) and other decision-support initiatives. However, some IT executives push back at the need for DWappliances, unsure whether this approach offers significant enough benefits at a low enough cost to justify moving awayfrom traditional “roll your own” DW implementations.In June 2011, IBM commissioned Forrester Consulting to examine the total economic impact and potential return oninvestment (ROI) enterprises may realize by deploying its Netezza data warehouse appliance with advanced analytics.The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of the IBMNetezza appliance on their organizations.IBM Netezza Analytics is an extensible, embedded, advanced analytics software platform delivered with every IBMNetezza appliance. It simplifies the development, deployment, and use of advanced analytics while delivering highperformance and scalability. For a more detailed overview about the IBM Netezza solution, please refer to page 24.IBM Netezza Data Warehouse Appliances Provide Competitive Differentiation ThroughFaster Analytics While Reducing Capital And Operational CostsOur interviews with one existing customer, Epsilon, a multichannel marketing services provider, and subsequentfinancial analysis based on assumptions that Forrester used illustrate the potential ROI from the use of IBM Netezzaappliances. Epsilon is one of IBM Netezza’s largest partners in the campaign marketing industry. Table 1 illustrates therisk-adjusted ROI, costs, and benefits resulting from this analysis.Table 1Three-Year Risk-Adjusted ROI1ROI Payback period Total benefits (PV) Total costs (PV)Net present value(NPV)222%Within 12months$4,712,504 $1,464,637 $3,247,867Source: Forrester Research, Inc.• Benefits. The interviewed organization noted the following benefits for its clients from the use of the IBMNetezza appliances with financial analysis based on cost assumptions that Forrester used:o Capex cost savings. The organization noted that by switching to IBM Netezza appliances — as comparedwith expanding their traditional data warehouse environment — it could realize hardware cost savings ofmore than $750,000 over three years, driven by the ability to consolidate two separate data warehouses down

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 3to a single data warehouse and an IBM Netezza appliance. This benefit has a three-year, risk-adjusted presentvalue (PV) of nearly $600,000.o Opex cost savings. The organization noted that by switching to IBM Netezza appliances, it could also realizeoperational cost savings through consolidation of its existing data warehouse environment due to post-consolidation/migration to DW appliance, fewer database administrators (DBAs), which is due to fewer DWinstances and fewer DBAs per instance. This benefit has a three-year, risk-adjusted PV of just under $1.5million.o Revenue lift. The purchase of IBM Netezza appliances also enables the organization to provide added valueto its clients through a strategic shift from large episodic campaigns to frequent, microtargeted campaignsthrough triggered campaigns. As a result, the organization was able to produce a greater number ofcampaigns resulting in higher overall conversion. This benefit has a three-year, risk-adjusted PV of $2.54million.o Productivity gains. The organization noted that IBM Netezza appliances provided end users with the abilityto sift through massive data sets in less time and with greater granularity. This has the impact of making theend user marketing staff more productive, shifting resources away from time-consuming data quality controlto focusing on campaign strategy and analytics. This resulted in a total three-year, risk-adjusted savings ofmore than $175,000.• Costs. The organization we interviewed experienced the following costs:o Hardware and maintenance costs. The hardware and maintenance costs have a three-year, risk-adjusted PVof about $1.5 million.o Planning and implementation costs. The internal labor costs for planning and implementation have athree-year, risk-adjusted PV of about $30,000.o Administration costs. The internal labor costs for administration have a three-year, risk-adjusted PV ofabout $550,000.o Training costs. Initial training costs have a three-year, risk-adjusted PV of about $5,000.Figure 1 summarizes the yearly and cumulated cash flow, and Figure 2 shows the breakdown of the benefit and costcategories for the organization.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 5• Legacy DW environment. The level of operational and capital cost savings will depend on the organization’slegacy environment and the alternatives compared with investing in IBM Netezza appliances. In this case, theorganization migrated two separate data warehouses down to a single data warehouse instance with an IBMNetezza appliance resulting in operational and capital cost savings.• Business opportunities. The level of top-line impact will vary in large part on how the data impacts externalinitiatives. In the case of the interviewed organization, there was a clear link between the processing of advancedanalytics and the ability to roll out external marketing campaigns.• Productivity. The level of productivity increases will depend on the ability of end users individually and in teamsto analyze, evaluate, and take more effective action on intelligence delivered and processed through the IBMNetezza appliance.DisclosuresThe reader should be aware of the following:• The study is commissioned by IBM and delivered by the Forrester Consulting group.• Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester stronglyadvises that readers should use their own estimates within the framework provided in the report to determine theappropriateness of an investment in IBM’s Netezza data warehouse appliances with advanced analytics.• IBM reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and itsfindings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning ofthe study.• The customer names for the interviews were provided by IBM.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 6TEI Framework And MethodologyIntroductionFrom the background information provided in the interviews, Forrester has constructed a Total Economic Impact™(TEI) analysis for those organizations considering deployment of IBM’s Netezza data warehouse appliance withadvanced analytics. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affectthe investment decision.Approach And MethodologyForrester took a multistep approach to evaluate the impact that IBM’s Netezza appliance can have on an organization(see Figure 2). Specifically, we:• Interviewed IBM marketing and sales personnel and Forrester analysts to gather data relative to IBM Netezzadata warehouse appliance with advanced analytics and the marketplace for data warehouse solutions.• Interviewed Epsilon, which is currently using an IBM Netezza appliance, to obtain data with respect to costs,benefits, and risks.• Constructed a financial model representative of the interviews using the TEI methodology. The financial model ispopulated with the cost and benefit data based in part from assumptions derived from the interviews.Figure 2TEI ApproachSource: Forrester Research, Inc.Forrester employed four fundamental elements of TEI in modeling the IBM Netezza appliance:1. Costs.2. Benefits to the entire organization.3. Flexibility.4. Risk.Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’sTEI methodology serves the purpose of providing a complete picture of the total economic impact of purchasedecisions. Please see Appendix A for additional information on the TEI methodology.Constructfinancialmodelusing TEIframeworkWrite casestudyPerform duediligenceConductcustomerinterviews

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 7AnalysisInterview HighlightsA single organization, Epsilon, was interviewed for this study. Epsilon is a marketing services firm based in the US withoffices throughout the globe. Epsilon provides a broad array of data-driven, multichannel marketing solutions thatleverage consumer insight to help brands deepen their relationships with customers. Services include strategicconsulting, acquisition and customer database technologies, loyalty management, proprietary data, predictivemodeling, and a full range of direct and digital agency services, including creative, interactive web design, emaildeployment, search engine optimization, and direct mail production. In addition, Epsilon is the world’s largestpermission-based email marketer and IBM Netezza’s top marketing services partner.The interviews uncovered several salient points that were used as the basis for the analysis:• Epsilon is the world’s largest global permission-based email provider with clients across multiple industries.Epsilon has deployed IBM Netezza appliances as the data warehouse platform supporting many of its largestclients since 2003.• Over three years ago, one of Epsilon’s top clients made the decision and needed to integrate its campaign datawarehouse into a single product. Epsilon proposed to the client that it consolidate two separate data warehouseinstances into a single data warehouse with an IBM Netezza appliance for advanced analytics.• The case for moving to an IBM Netezza appliance involved a combination of operational and capital cost savingsthrough consolidation as well as the ability to improve the time to process advanced analytics for individualcampaigns. The individual campaigns were specifically performing credit scoring analytics across a targetedsample of the US population.• The cost associated with the investment in an IBM Netezza appliance included the cost of the appliance, annualmaintenance, planning, implementation, and training, as well as ongoing cost of administration.• Epsilon noted that due to the increased performance, the organization could change the way campaigns werecreated and delivered. The IBM Netezza appliance allowed for not only results to be delivered faster but it alsogave the organization deeper granularity within massive data sets. Campaigns could leverage a comprehensiveview of the individual across massive data assets: company customer data, credit bureau, demographic/compileddata, partner data, and transactional data. This resulted in more effective campaigns and higher productivity ofcampaign staff.Framework AssumptionsTable 2 provides the model assumptions that Forrester used in this analysis.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 8Table 2Model AssumptionsRef. Metric Calculation ValueA1 Working hours per day 8A2 Working days per year 260A3 Working hours per year A1*A2 2,080A4 Average fully loaded annual salary rate $166,400A5 Average fully loaded hourly salary rate A4/A3 $80Source: Forrester Research, Inc.The model assumes that the alternative to investing in the IBM Netezza appliance would have been to run one DW hub(for the data) and an analytical data mart (essentially, a single subject area DW) for the advanced analytics modelbuilding, execution, and scoring. The IBM Netezza appliance can be deployed as the analytical data mart or as, in onephysical instance, both the DW hub and the analytical data mart (performing both functions through mixed workloadmanagement and parallel processing). Forrester estimates the cost of deploying a separate relational database system forthis environment equates to $4.75 million over three years. Table 3 illustrates the percent breakdown of cost to supportthat database across hardware, software, and administration.Table 3Cost Of Deploying Legacy Relational Database SystemsRef. Type Percentage of total CostsB1 Hardware 45% $2,137,500B2 Software 30% $1,425,000B3 Administration 25% $1,187,500B4 Cost of deploying legacy relational database systems B1+B2+B3 $4,750,000Source: Forrester Research, Inc.The discount rate used in the PV and NPV calculations is 10%, and time horizon used for the financial modeling isthree years. Organizations typically use discount rates between 8% and 16% based on their current environment.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 9Readers are urged to consult with their respective company’s finance department to determine the most appropriatediscount rate to use within their own organizations.CostsThis section describes and lists the projected incremental costs for deploying and using the IBM Netezza appliancesover a three-year period. Estimates are based on initial estimates a will vary on an implementation-by-implementationbasis.Technology CostsThe composite organization had to invest in an IBM Netezza appliance. This appliance is deployed next to the existingdata warehouse environment. The initial investment of $640,000 includes the hardware costs, related software licenses,and maintenance fees for the first year. For the following years, the composite organization pays an annualmaintenance fee of 18% of upfront cost, equating to an annual spend of $115,000.Please note that we used IBM list prices in this analysis. Readers should ask for a quote to determine what hardware,software, and maintenance costs would be applicable for their particular environments.Internal Implementation CostsThe internal labor costs for planning, implementation, and project management are indicated in row C2 of Table 4below. For the interviewed organization, we assumed three people working for about 120 hours each at a fully burdenedhourly cost of $80.TrainingFeesIn this analysis, we assume that two people from the storage team attend a training course. The total training cost of$4,800 is indicated in row C4 in Table 4 below.Administrative CostsOngoing administrative costs include the labor necessary to support and manage the IBM Netezza appliance on a dailybasis. For the purpose of this analysis, the organization will allocate one and one quarter staff time to support andmanage the new appliances. Assuming a fully burdened cost of $80 per hour, we can calculate that the total yearly costof administration and support equates to $208,000.Total CostsTable 4 summarizes the incremental costs incurred by the reference organization for deploying and using the IBMNetezza appliances over a three-year period.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 10Table 4Total Costs (Non-Risk-Adjusted)Ref. Costs Initial Year 1 Year 2 Year 3 TotalC1 Technology costs $640,000 $0 $115,200 $115,200 $870,400C2 Planning and implementation costs $28,800 $0 $0 $0 $28,800C3 Administration costs $0 $208,000 $208,000 $208,000 $624,000C4 Training costs $0 $4,800 $0 $0 $4,800Ct Total costs (non-risk-adjusted) $668,800 $212,800 $323,200 $323,200 $1,528,000Source: Forrester Research, Inc.BenefitsThis section illustrates the representative benefits from investing in the IBM Netezza appliances as a result ofdiscussions with Epsilon. The benefits described to Forrester included reduced capital and operational costs, improvedcampaign impact, as well as improved end user productivity through faster data analysis.ITCapital Cost SavingsAs noted in Table 3, Epsilon was faced with the choice of either deploying two data warehouse platforms or deploying asingle data warehouse in conjunction with the IBM Netezza appliance. This section illustrates the capital cost savings onnot having to deploy one of the two data warehouses. Forrester assumes the cost of hardware for the alternativeapproach equates to roughly $2.1 million dollars (see B1). Deploying the IBM Netezza platform results in an upfrontcapital cost reduction of 40% of the total alternative spend realized in the first year of analysis. With upfront capital costsavings, annual maintenance savings for the alternative platform is also included as a result of not having to deploy thesecond data warehouse. The annual savings in Year 2 and Year 3 equate to $171,000 per year.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 11Table 5IT Capital Cost Savings (Non-Risk-Adjusted)Ref. CostsValue/calculationYear 1 Year 2 Year 3 TotalD1 System cost — hardware$2,137,500 (seeB1)D2 Percent reduction 40%D3 Maintenance as a percent of hardware 20%D4 Benefit realization 50% 100% 100%DtTotal savings — hardware andmaintenanceYear 1:D1*D2*D4Year 2 and Year3: D1*D2*D3*D4$427,500 $171,000 $171,000 $769,500Source: Forrester Research, Inc.ITOperational Cost SavingsIn addition to the capital cost savings from not having to deploy multiple data warehouses to run the advanced analyticsprocessing, Epsilon also noted the potential operational cost savings from the IBM Netezza appliance investment. Thisincluded the reduced administrative costs of not only having to manage multiple relational databases but also the costavoidance of not having to deploy the second data warehouse.IT Operational Cost Savings — Reduced Administration CostsReduced administration costs represent a piece of the overall cost savings for Epsilon. For this analysis, Forresterassumes a reduction of 60% in the cost of administration by deploying the IBM Netezza appliances in conjunction witha single data warehouse. This is a result of primarily reduced complexity within the environment and reduced hoursdevoted to changes and updates of two separate data warehouses.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 13Revenue LiftIn addition to the operational and capital cost savings, another key benefit for Epsilon was the ability to processadvanced analytics in less time for their customer. A critical component of the value proposition for Epsilon was beingable to deliver credit scoring analytics to their customer, ultimately providing their customer with ability to delivertargeted campaigns ahead of their competitors. Prior to the migration, the credit scoring process was time-consuming,often taking up to two days to process the data. In addition, there was no way to provide a comprehensive view of theindividual across massive data assets: company customer data, credit bureau, demographic/compiled data, partner data,and transactional data without the need for time-consuming data preparation. The customer noted that data was pulledfrom the database, scored and analyzed on a third-party application, and then an analytic model had to be loaded backinto the database. After the credit scoring process was complete, the end user BI and campaign group would beresponsible for identifying the target audience based on changing external factors.The result in moving to an IBM Netezza data warehouse appliance was the ability to go much deeper in granularityacross individual data sets. Company customer data, credit bureau, demographic/compiled data, partner data, andtransactional data could be analyzed in-database allowing for greater segmentation and targeting of campaigns. Theresult is an increase in campaign effectiveness ultimately leading to higher conversion for each campaign.To calculate this benefit, Forrester conservatively assumes one primary campaign using credit scoring data will beimpacted by improved time of delivery of data. Each campaign has a target reach on average of roughly 3 millionpotential customers. These customers are also being solicited by competing companies and as a result, receiving acampaign promotion immediately after a market change increases the likelihood of conversion and competitiveadvantage. For the client organization, it meant taking a two-month process and condensing it to two days. The resultto the campaign is a 1% increase in conversion as a result of pushing out a campaign ahead of its competitors.Assuming a converted customer’s average yearly account balance is $500, and the net margin on that outstandingbalance is 10%, the total impact equates to roughly $750,000 in the first year and $1.5 million in Years 2 and 3.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 14Table 8Revenue Lift (Non-Risk-Adjusted)Ref. CostsValue/calculationYear 1 Year 2 Year 3 TotalG1Number of primary targetedcampaigns1G2Campaign reach (number ofpeople)3,000,000G3Increase in conversion throughfaster deployment1%G4 Average account balance $500G5 Net margin 10%G6 Benefit realization 50% 100% 100%Gt Total revenue liftG1*G2*G3*G4*G5*G6$ 750,000 $ 1,500,000 $1,500,000 $3,750,000Source: Forrester Research, Inc.End User Productivity GainsImproved time-to-delivery is one area of top-line benefit noted by Epsilon. Another area of benefit is the ability of endusers to increase their productivity through faster access of advanced analytics. The organization noted that both BIteams and campaign management were limited in their access prior to the investment in IBM Netezza data warehouseappliances. The users spent most of their time waiting for data, and only a small number of people had access to thedatabase at one time. Improving the speed of delivery of credit score analytics has the effect of increasing their overallcontribution to the organization by being able to act on analysis sooner and contribute higher returns to theorganization.End User Productivity Gains — Improved BI/Analytics ProductivityTo calculate the end user productivity benefit on staff, we assume with faster delivery of advanced analytics, end usersare able to contribute increased value to the organization. Assuming 35% of an employee’s time is spent on creditscoring analytic data, that employee contributes a staff rate of return of 25%. The staff rate of return is the added valuean employee contributes above and beyond their salary. For example, for every $1 the employee receives in salary, shewill contribute an estimated $1.25 to the organization. The ability to decrease the time to process credit scoring data hasa positive impact on the staff rate of return, increasing the baseline 35% value by 25%. This results in greater valuecontributed to the organization by the employee.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 17options for this customer would require scenario development and forward-looking analysis, which is not available atthis time.RiskForrester defines two types of risk associated with this analysis: implementation risk and impact risk. “Implementationrisk” is the risk that a proposed investment in IBM Netezza data warehouse appliance may deviate from the original orexpected requirements, resulting in higher costs than anticipated. “Impact risk” refers to the risk that the business ortechnology needs of the organization may not be met by the investment in IBM Netezza appliance, resulting in loweroverall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefitestimates.Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in moremeaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raisingthe original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should betaken as “realistic” expectations, as they represent the expected values considering risk.The following implementation risks that affect costs are identified as part of this analysis:• Planning, installation, and testing could demand more time than originally anticipated due to the organization’sprior experience with appliance-based technology.• Acquisition costs could be higher than originally anticipated for both based on the level of discount price receivedfrom IBM.The following impact risks that affect benefits are identified as part of the analysis:• The amount of operational and capital cost savings could be lower than anticipated due to the scope and type ofalternatives considered.• The end user and campaign impact could be lower than anticipated due to lower adoption and use of advancedanalytics.Table 12 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses atriangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to firstestimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted valueis the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their owndegree of confidence in the cost and benefit estimates.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 20IBM Netezza Data Warehouse Appliance With Advanced Analytics: OverviewAccording to IBM, every IBM Netezza data warehouse appliance is delivered with IBM Netezza Analytics, anembedded software platform for advanced analytics. It provides the technology infrastructure to support enterprisedeployments of parallel, in-database analytics. Support for a variety of popular tools and languages as well as a built-inlibrary of parallelized analytic functions make it simple to move analytic modeling and scoring inside the datawarehouse appliance. IBM Netezza Analytics is fully integrated into the IBM Netezza data warehouse asymmetricmassively parallel processing (AMPP) architecture enabling data exploration, model building, model diagnostics, andscoring with unprecedented speed. IBM Netezza data warehouse appliance with advanced analytics can process massivedata to solve complex problems orders of magnitude faster than typical solutions. The open and flexible advancedanalytics platform enables the development and deployment of analytics to drive game-changing results. With IBMNetezza Analytics, parallelized analytics for data preparation, data mining, predictive modeling, and optimization canexploit the IBM Netezza appliance’s AMPP architecture to achieve high throughput of advanced analytics on huge data.IBM Netezza Analytics can be extended by creating your own powerful, advanced analytics and embed them into theappliance. Analytic applications, visualization tools, and business intelligence tools can harness the parallelizedadvanced analytics via a variety of programming methods such as SQL, Java, MapReduce, Python, R, C, C++, andFortran to deliver powerful, insightful analytics.The IBM Netezza Analytics platform can be used for:1. Building and deploying advanced analytic applications.2. Leveraging parallel analytics via visualization or business intelligence tools.3. Performing ad hoc analysis especially on huge data or computational intensive problems.Visualization and business intelligence tools leverage the analytics in the IBM Netezza Analytics platform via SQL fortargeted inquiries.The IBM Netezza appliance implements parallel processing as close to the source of data as possible, and it allowscustomers to benefit from an open and flexible appliance ready to handle increasing volumes of data. A balancedarchitecture is key to achieving the best possible price/performance for advanced analytics, and every component of theIBM Netezza appliance architecture is carefully selected and optimized to service data as fast as the physics of the diskallows.By combining a fast data warehouse with high-performance embedded analytics into a single platform, IBM hasreduced the need for data movement and enabled advanced analytics on large data sets.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 21Appendix A: Total Economic Impact™ OverviewTotal Economic Impact is a methodology developed by Forrester Research that enhances a company’s technologydecision-making processes and assists vendors in communicating the value proposition of their products and servicesto clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives toboth senior management and other key business stakeholders.The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility.BenefitsBenefits represent the value delivered to the user organization — IT and/or business units — by the proposed productor project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room toanalyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial modelplace equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect ofthe technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the userorganization to understand the specific value that is created. In addition, Forrester also requires that there be a clear lineof accountability established between the measurement and justification of benefit estimates after the project has beencompleted. This ensures that benefit estimates tie back directly to the bottom line.CostsCosts represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the businessunits may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all theinvestments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI capturesany incremental costs over the existing environment for ongoing costs associated with the solution. All costs must betied to the benefits that are created.RiskRisk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measuredin two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihoodthat the estimates will be measured and tracked over time. TEI applies a probability density function known as“triangular distribution” to the values entered. At minimum, three values are calculated to estimate the underlyingrange around each cost and benefit.FlexibilityWithin the TEI methodology, direct benefits represent one part of the investment value. While direct benefits cantypically be the primary way to justify a project, Forrester believes that organizations should be able to measure thestrategic value of an investment. Flexibility represents the value that can be obtained for some future additionalinvestment building on top of the initial investment already made. For instance, an investment in an enterprise wideupgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reducelicensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated.The collaboration can only be used with additional investment in training at some future point in time. However,having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEIcaptures that value.

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 22Appendix B: GlossaryDiscount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although theFederal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investmentenvironment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discountrates between 8% and 16% based on their current environment. Readers are urged to consult their respectiveorganization to determine the most appropriate discount rate to use in their own environment.Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (thediscount rate). A positive project NPV normally indicates that the investment should be made, unless other projectshave higher NPVs.Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate(the discount rate). The PV of costs and benefits feed into the total net present value of cash flows.Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs)equal initial investment or cost.Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated bydividing net benefits (benefits minus costs) by costs.A Note On CashFlow TablesThe following is a note on the cash flow tables used in this study (see the example table below). The initial investmentcolumn contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cashflows in Years 1 through 3 are discounted using the discount rate (shown in Framework Assumptions section) at theend of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value(NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and thediscounted cash flows in each year.Table [Example]Example TableRef. Category Calculation Initial cost Year 1 Year 2 Year 3 TotalSource: Forrester Research, Inc.Appendix C: Related Forrester Research“The ROI Of Data Warehousing Appliances: Benefits, Costs, And Risks,” Forrester Research, Inc., November 10, 2010

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Forrester ConsultingThe Total Economic Impact Of IBM’s Netezza Data Warehouse Appliance With Advanced AnalyticsPage 23Appendix D: Endnotes1Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost andbenefit estimates. For more information on Risk, please see page24.